Business context and reporting period
This is MassRoots, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015—not a filing under the company name in the request, Greenwave Technology Solutions, Inc. Verify the issuer before relying on this summary. MassRoots operated a social network for the cannabis community and said its first-quarter priorities were restoring iOS App Store access, growing its user base, and developing products for consumers and businesses.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 or prior balance-sheet date |
|---|---|---|
| Revenue | $941 | $995 |
| Gross profit | $241; 25.6% margin | $305; 30.7% margin |
| General and administrative expenses | $565,051 | $681,507 |
| Operating loss | $(564,810) | $(681,202) |
| Net loss | $(550,509); $(0.01) per share | $(682,465); comparative EPS not provided |
| Operating cash flow | $(409,141) | $(122,571) |
| Cash | $54,891 | $141,928 at December 31, 2014 |
| Total assets | $952,296 | $366,529 at December 31, 2014 |
| Total liabilities | $1,442,032 | $1,313,328 at December 31, 2014 |
At March 31, current assets were $827,742 versus current liabilities of $1,293,802, a working-capital deficit of approximately $466,000. Current liabilities included $1,226,383 of derivative liabilities. Convertible debentures were carried at $148,230, net of an $80,870 discount; the filing describes $269,100 of original debentures, maturing March 24, 2016, with a 0% stated interest rate. Stockholders’ deficit was $489,736.
Changes and unusual items
G&A expense declined 17.1%, with management attributing the decrease mainly to lower equity-based service costs year over year; this was partly offset by higher payroll, advertising, contractor, and other expenses. Payroll expense rose to $162,930 from $32,908 as headcount increased from four to 16. Q1 included $113,712 of common stock, $47,009 of options, and $3,832 of warrants issued for services. Operating cash use increased substantially year over year despite the lower net loss.
Other income included a $42,737 gain from remeasurement of derivative liabilities, partly offset by $26,146 of debt-discount amortization and $2,290 of interest expense. Derivative liabilities are Level 3 fair-value estimates using a Black-Scholes model and management assumptions, including 150% expected volatility. The company reported 40,817,000 common shares outstanding at quarter-end and 43,837,738 at April 30, 2015.
Outlook, liquidity, and risks
Management said registered users increased from a little over 200,000 to 275,000 during Q1, a 37.5% increase. MassRoots returned to Apple’s App Store in mid-February, subject to a location restriction limiting access to users in 23 states with medical-cannabis laws. The company expected 500,000 users in Q3 2015 and 1 million in Q1 2016. Its free MassRoots for Business portal had more than 100 business users by quarter-end; management targeted 1,000 dispensaries and initial revenue in the second half of 2015, with paid-conversion targets of 20% in Q3 2015 and 40% of 2,500 dispensaries in Q1 2016. These are forward-looking targets, not results.
The company disclosed substantial doubt about its ability to continue as a going concern: it had recurring losses, had not generated internal operating cash flow, and said quarter-end cash would fund approximately one month of operations. It estimated needing $2.5 million over the next fiscal year and expected to seek $2.8 million through warrant exercises, but cautioned exercise was not assured. It stated that failure to obtain funding could force it to cease operations or seek bankruptcy protection. After quarter-end, it reported a $576,200 private placement and $115,000 from warrant exercises. It also entered a 37-month office lease with scheduled monthly base rent rising from $8,288 to $8,880 after the first month.
Other notable disclosures: management identified ineffective disclosure controls and a material weakness in segregation of duties due to limited staff, with plans to hire accounting personnel in 2015 and 2016. The company reported no current or pending legal proceedings and no off-balance-sheet arrangements. It checked “No” for having been subject to reporting requirements for the preceding 90 days.
Key facts investors should verify
- Issuer identity: the supplied filing is for MassRoots, Inc., not Greenwave Technology Solutions, Inc.
- Funding runway, post-quarter financing proceeds, warrant exercises, and the likelihood of raising the additional capital management says it needs.
- Whether user-growth and MassRoots for Business adoption and monetization targets were achieved.
- The valuation assumptions and potential effects of the $1.226 million derivative liability, along with debenture terms and conversion activity.
- Whether management remediated the disclosed material weakness and ineffective disclosure controls.
- The share count and dilution from equity offerings, warrants, options, and service awards; the filing reports different share counts at quarter-end and April 30.